How to validate For Sale by Owner sales numbers
How to validate a For Sale by Owner sales numbers can be a challenge for buyers. A For Sale by Owner listing is a person that decided instead of hiring a Restaurant Broker; chose to represent themselves.
People decide to represent themselves as a For Sale by Owner for several reasons: they don’t want to pay a commission, think the restaurant sales process is simple, and lastly, the clueless restaurant owner that educates themselves on Google.
EATS Restaurant Brokers provides 3 Ways to validate For Sale by Owner sales numbers:
1st-Request a copy of Sales Tax Filings–This represents the gross sales amount the restaurant owner reported to the state government. Restaurant owners who keep accurate books and records pay the correct amount owed for sales tax.
Independent-owned restaurants have many restaurant owners who do not report the correct amount of gross sales to reduce their sales tax bill. Restaurant buyers should only look at the amount reported to State Government.
Sales Tax filings amount can fluctuate from state to state. The statewide sales tax rate is 4% in Georgia, but local rates typically vary from 7-8% (4% for state, plus an additional 3 or 4% for local).
2nd-Request a copy of Tax Returns filed with the IRS, confirm tax returns are the correct ones reported to state government. Tax Returns provide vital information regarding the Gross sales and net profit of a restaurant.
Dominique Maddox, a Restaurant Broker for EATS Restaurant Brokers, says, “I would recommend requesting a Request for Transcript of Tax Return(Form 4506-T) form. Filing this documentation allows the buyer or bank to request tax returns directly from the IRS.
I have experienced instances were the tax returns provided to the buyer did not match the tax returns the IRS had on file”.
3rd-Request a copy of the POS Sales report– The POS Sales report can help buyers understand and simplify the restaurant sales breakdown.
4th- Count the number of customers during peak hours– This is the least recommended method for confirming a For Sale by Owner’s financial numbers. Some buyers like to visit and sit around for a while to monitor the customer traffic count and buying habits.
EATS Restaurant Brokers Tips when buying a restaurant from a For Sale by Owner:
- Inspect the equipment during the due diligence period. Confirm that the restaurant owner owns the equipment and is not leasing it or the landlord owns it.
- Make sure the closing attorney does a UCC lien search days before the closing.
- Ask Restaurant Seller to provide a Sales Tax Clearance Letter before closing.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
Read More
Why You Can’t Sell Your Sell Restaurant?
Have you ever wondered why you can’t sell your restaurant? It’s a fact only about 30%-40% of restaurants for sale listed under 1 million dollars will transfer to new buyers via a sales transaction.
Buying an existing restaurant for sale can be a quick approach to become a restaurant owner. This approach eliminates some of the difficulties of starting a new restaurant.
Today restaurant for sale market is unique and selective compared to the number of restaurant listings for sale last year before the Covid pandemic. Some states have seen the number of restaurant listings for sale decreased by 20%-40% or more.
Unlike the residential market, where it’s a seller’s market, it’s a buyer’s market in the restaurant brokerage industry. The number of buyers in the market looking for restaurants for sale far outnumbers the number of sellers willing or able to sell.
There is an old saying In the Restaurant Brokerage Industry of “there are no bad restaurant listings for sale; they are just not priced correctly.”
Selling a restaurant can be a process that takes 6-9 months before a transaction is complete. Most Business Brokers or Restaurant Brokers require listing agreements of 6-12 months.
There are several reasons why a restaurant doesn’t sell;
EATS Broker has created a list of the most commons reasons:
1. Overpriced Listing– This is the obvious way to keep a restaurant from selling. It’s an emotional challenge for restaurant owners to put a monetary value on their restaurant. The value should be based on the Tax Returns or priced as an Asset Sale.
2. Bad Books and Records– The Tax Returns and Profit and Loss statements tell the story about a restaurant’s financial success or failures. The majority of buyers are only interested in verifiable sales numbers.
Restaurant Owners leave a lot of money on the table when they manipulate their books and records to pay the IRS less in taxes. This approach hurts when it’s time to sell the restaurant and impress the buyers.
3. Lease Terms– In some cases, the lease terms can make the restaurant more attractive or less attractive to new buyers. A majority of restaurants for sale under 1 million dollars will involve a lease assignment or transfer. This means the landlord will approve the new tenant, and they will be responsible for the lease terms agreed upon by the restaurant seller.
EATS Restaurant Brokers provides-ISSUES TO CONSIDER WHEN EVALUATING A LEASE
Commercial leases can have various rent structures that can make it challenging for a restaurant owner to sell a restaurant.
-Rent Structure- can range from a Net Lease, Single Net Lease, Double Net Lease, or Triple Net Lease (NNN Lease. Landlords can also add verbiage for a percentage of sales.
-Yearly Increases
-Stipulations on Lease
-Lack of Option Years
-Landlord Financial Requirements
-Common Area Maintenance(CAMS) yearly increases.
-Landlord owns the equipment
4.Seller unrealistic with listing– Today’s restaurant sellers have to be realistic when it comes to the resale market. Some restaurant owners expect their restaurant to be sold in a month. Some restaurant owners want to price their restaurant at 4x-5x earnings.
Today’s restaurant owners that want to sell have to be willing to negotiate and be flexible.
5. Lack of Financing-All restaurants for sale do not qualify for bank lending, and a majority of buyers can’t pay a 100% cash price.
It’s a known fact that restaurant owners that offer owner financing get a higher asking price from a buyer. This option does come with a certain amount of risk for a restaurant owner, but it does allow more buyers to qualify financially.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
Read MoreHow do you write a letter of intent for a lease
How do you write a letter of intent for a lease is a struggle for inexperienced brokers representing clients or unrepresented potential tenants? Once a potential tenant finds a commercial lease space, the process to negotiate with the landlord begins.
A letter of intent (LOI) is a document declaring one party’s preliminary commitment to do business with another. The letter outlines the key points of a deal that will be negotiated between all parties involved.
LOIs are useful when two parties, usually landlord and potential tenant, work together to hammer out the broad strokes before resolving the finer points.
Letter of Intents can be drafted and presented by either party. The receiving party can accept the terms or redline and revise the words to send back to the original sender.
Key Points on a Letter of Intent Include:
- Tenant Improvement Allowance (TI)
- Rent Abatement
- Personal Guaranty
- Rent structure
- Term of Lease
- Options to extend
- Permitted Use/Exclusive Use
- Rent Commencement Date
- Landlords Delivery Condition
- Lease Assignment Rights
- Security Deposit
- Advanced Rent
- Repairs and Maintenance
- Brokerage Disclosure and Commission
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “the letter of intent is an essential part for a potential tenant to address all concerning issues before signing a new lease.
Landlords pay lawyers to draft leases that protect all their concerns. In this business, I always say the landlord is not your friend. Potential tenants need to have a professional on your side when negotiating the lease”.
EATS Brokerssuggest hiring a professional Business Broker or Restaurant Broker to review the following items on a Letter of Intent (LOI):
- Personal Guarantees- how long will the tenant be a personal guarantor.
- Exclusivity-does the tenant have any protection from incoming tenants competing with their cuisine.
- Covenants, POA rules, and regulations
- Zoning issues
- Subordination
- SBA leases
- Renewals- Provides information on renewals and rates.
- Non-Disturbance
- Dispute resolution
The detailed information to consider when evaluating a new lease can be overwhelming to an inexperienced restauranteur or real estate professional. Most landlords hire property management companies to negotiate new leases. These hired professionals’ job is to get the landlord the best deal possible.
To all potential tenants, remember when you call the “For Lease” sign on a vacant restaurant space, you are letting the landlord know you are representing yourself in lease negotiations.
For more information on restaurant leasing and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com.
Visit our website at www.EATSbroker.com
Read More
Who pays for closing attorney fees for restaurant sale?
Who pays for closing attorney fees for a restaurant sale, who does the lawyer actually represent? Once the buyer-seller has agreed to a purchase price, next, it’s time to open escrow and hire a closing attorney.
The closing attorney represents the buyer, and it’s the buyer’s expense to pay at the closing table. Most transactions only have a buyer closing attorney; occasionally, a seller will hire its own closing attorney.
Closing Attorney Fees for Restaurant Sales can differ from attorney to attorney. Unlike residential real estate transactions, restaurant buyers don’t need a closing attorney for the sales transaction to close, but it’s highly recommended.
What does a closing attorney actually do for the transactions? The closing attorney will provide a Bill of Sale, Non-compete agreements, settlement statements, and disburse closing funds to all parties.
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers, says, “closing attorneys can be an asset or liability in a sales transaction. We always recommend closing attorneys that specialize in a business transaction rather than residential transactions.
The worst case I have experienced is dealing with a non-experienced attorney in Texas who was friends with the buyer. The buyer hired her “friend,” and he didn’t know what he was doing; he was actually learning on the job. He charged her $7,500 for a task that should have cost $1500-$2000”.
Closing attorney fees can fluctuate; find below three Attorneys EATS Restaurant Brokers recommends to clients for restaurant sales transactions and how the prices can differ.
Attorney #1
Base Closing: $1000-If cash transaction and includes a bill of sale, indemnifications, non-compete agreement, settlement statements, disbursements (wife fees included)
Base Closing with an institutional lender: $2000 includes all the above and dealing with lender requirements.
Seller Financing Docs: $350
Seller Wire $25
Lien Search: Cost but is included in the Base Closing fee
Draft Escrow Agreement: $350
Attorney #2
Base Closing $1200- If cash transaction and includes a bill of sale, indemnifications, non-compete agreement, settlement statements, disbursements (wife fees included)
Seller Financing Docs $400
Non-compete agreements-$200.
Lien Search $275-included in base closing.
Base Closing – All Cash (includes Bill of Sale, indemnifications,
Non-Competition Agreement, Settlement Statement and disbursements) $1,400
Closing Attorney #3
Base Closing – w/Seller Financing Documents $1,900
Base Closing – w/Traditional Loan $2,500
Base Closing – w/Small Business Administration Financing $3,500
Lien Search (the business name for UCCs and up to 2 individuals) $200
Escrow Agreement $350
Escrow Service Only $525
Mail Away Service $100
EATS Broker advice for using a Closing Attorney:
- Use a business attorney who commonly closes business transactions. Confirm your transaction will not be the 1st restaurant sales transaction they have completed.
- Agree on price and terms upfront for the restaurant sales transactions. Do not let the attorney charge you an hourly rate.
- Use the Restaurant Brokers Asset Purchase Agreement and have an attorney review. Do not ask the attorney to draft an agreement. This can be expensive, and some attorneys charge by the hour.
A closing attorney can be an asset or liability. It’s highly recommended to use a closing attorney for all restaurant sales transactions. If you don’t have a closing attorney, your restaurant broker should be able to recommend a good one.
Visit our website at www.EATSbroker.com for more information on selling or buying a restaurant.
Read MoreSelling a Franchise Restaurant vs Non-Franchise
What are the Pros and Cons of Selling a Franchise Restaurant vs. Non-Franchise is a common question EATS Restaurant Brokers receives from sellers? Franchise Restaurants for Sale make up 60%-70% of all restaurant sold listings annually. Why is the number so high compared to independently owned restaurants?
The hard facts are only 30%-40% of restaurants listed on the for-sale market will get sold to new buyers. Why does a Franchise Restaurant have a better chance of being sold than a non-franchise restaurant for sale?
EATS Broker discuss the Pros and Cons:
Pros:
- Trade Name: Franchisees have the right to use an established trade name, marks, logo, and goodwill. Buyers are generally knowledgeable about the concept and menu.
- Restaurant Valuation: Franchise Restaurants usually get a higher price valuation.
- Franchise Business Consultant: New buyers are assigned a Consultant from the franchise brand to receive additional training and support.
- Books and Records: Franchise Restaurants are known to have better books and records to provide to buyers. Franchise concepts typically require Franchisees to have updated POS sales systems.
- Landlord Approval-: Landlords, are most comfortable approving restaurant concepts for lease spaces. Occasionally lease assignments will have guaranteed landlord approval for franchise concepts.
- Bank Lending: Banks view franchise restaurants as less risky loans compared to an independently owned restaurant. The approval process, at times, can be quickly done.
Cons:
- Franchise Fee: Initial Franchise Agreement Fee ranges from $20,000-$100,000+ depending on Franchise. When a restaurant transfers to a new buyer, a transfer fee is generally required, usually up to 50% of the Franchise Agreement fee.
- Royalty: This operating fee is calculated based on Gross sales ranging from 3%-10% (it could be higher).
- National Marketing Fee: Required fee each franchisee pays to the franchisor to help with the franchise marketing cost. Expenses can range from 0%-6%.
- Remodel Cost: Franchises require locations to date on current specs before a sales transfer can take place to a new buyer. Restaurant remodels cost can be prohibitive depending on the Franchise’s current location requirements. Required upgrades can range from updated tables, chairs, signage, POS system upgrade, lighting, and cooking equipment.
- Required Training: New franchisees are required to complete a certain number of hours working in the restaurant before a buyer can achieve a sales transfer. This process from start to finish can range from 2 weeks-3 months.
- Franchise Approval: Buyers have to get approved by the Franchise.
- Vendors: Franchises have a list of preferred vendors that the franchisees must use.
Independent Owned Restaurant for Sale
Pros:
- No Royalty: Buyers are not required to pay 3%-10% to any franchise; this could equal hefty savings yearly.
- No Required Training: The buyer can schedule training with the seller, but a certain number of hours working in the new buyer’s business is not required to complete the transaction.
- Time to close: Once the buyer and seller agree to terms on an Asset Sale purchase and the landlord approves the new buyer, the deal can close. One of the most significant advantages of non-franchise sales is the lack of time to complete this deal. Instead of 2-4 months to close on a franchise concept, a buyer can close on a non-franchise restaurant in 2-4 weeks.
- Remodel Cost: Sellers are not required to do any upgrades unless buyers request.
- National Marketing Fee: Buyers are not required to pay an automatic marketing fee to anyone.
- Freedom: Have the ability to make changes with getting franchise approval. Owners have the freedom to choose their vendors.
- Local: Customers like to support local restaurants that are not national franchise concepts.
Cons:
- Restaurant Valuation: Normally are lower than Franchise concepts. Unless the restaurant has good books and records, goodwill, and has been open and established for years.
- Training: New buyers are on their own to learn the concept, operations, employees, and marketing. The buyer usually completes no formal training before or after the sale transaction.
- Trade name: Building up the trade name is 100% the responsibility of the operator. The new owner has to maintain or establish a new identity for the restaurant.
- Books and Records: Keeping updated and accurate books and records can be challenging for non-franchise concepts.
- Landlord approval: Landlords will frequently do more due diligence on a non-franchise concept before they approve a lease assignment. From the landlord’s standpoint, it is riskier to approve a non-franchise compared to a franchise concept.
Franchise Restaurant ownership and independently owned restaurants have tons of pros and cons to consider when buying a restaurant.
EATS Broker are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbroker.com or 404-993-4448.
Read MoreThe Cares Act 2-How does it help Restaurants?
The Cares Act 2 has some generous provisions to help restaurants. EATS Broker wants to share some great news about the latest $900 billion coronavirus relief bill. The coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, Congress’s $2.2 trillion pandemic relief law passed in March 2020.
Congress passed the relief bill to provide support to help people and businesses get through the next several months of the pandemic. Most people are aware of $284 billion’s renewed funding for the Paycheck Protection Program (PPP) to provide forgivable loans to borrowers. It is essential to note that this bill offers a simplified forgiveness application process for loans up to $150,000.
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “When I reviewed the details of the Cares Act 2, I was most concerned about the benefits to the restaurant industry.
The majority of the population knows about the PPP loans, EIDL Loans, and even the deduction for Business Meals, but many do not know about the 6-months of free payments for SBA loans. The free months of non-payment will help restaurant sales transactions”.
EATS Broker 3 Key Highlights from the Cares Act 2 Relief Bill
- FREE SBA Payments for six months-NO Principal or Interest required
Restaurant buyers purchasing a restaurant between 2/1/2021 and 9/30/2021 with an SBA loan will not have to pay principal or interest for six months. The non-payments are excellent news for restaurant owners that are considering selling their restaurant in 2021. Buyers have a strong incentive to buy a restaurant before the end of September. The waived principal and interest has a limitation of up to $9,000 per month.
For example, the buyer’s monthly SBA loan payment is $10,000 per month. The SBA will waive the first $9,000 owed, and the borrower would be responsible for a $1,000 charge for the first six months. Many of the deals on main street business brokerage will have lower monthly payments than $9,000 per month.
- Guarantee Fee Waived
This fee usually ranged from 2.5%-4% of the total loan amount to the buyer. Buyers can now take this savings on the closing cost to help fund their restaurant sales transaction.
- SBA Guarantees 90% of the loan amount
The SBA has increased its loan guarantee to banks from 75% to now 90%. Increased SBA loan guarantee is excellent news for restaurant buyers because now banks can take more risk and approve more lending deals.
It’s an incentive filled time to sell a restaurant or buy a restaurant using funds from the banks. EATS Broker are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Business Valuation; contact us today at sales@eatsbroker.com or 404-993-4448.
Read MoreHow to Sell a Franchise Restaurant?
The decision to sell a franchise restaurant can be challenging in today’s market. The good news is that if you own a Restaurant Franchise, buyers are lining up with interest. Close to 60%-70% of the restaurants for sale in Georgia that sell are franchise concepts.
Franchise concepts are growing right now, while independent owned restaurants are declining. Franchise Restaurants are popular because they come with a proven system, support, business model, logo, IT support, and reputation.
When it is time for a Franchisee to exit the business, they have a couple of choices on how to sell their restaurant. One of the most significant considerations when selling a franchise restaurant is, do I sell to a current franchisee? Or do I sell to a non-franchisee?
Dominique Maddox, a Restaurant Broker and Founder of EATS Broker says, “ selling a franchise restaurant to a current franchisee is much different from selling to a new franchisee. Current franchisees understand the brand; new franchisees need much information to educate them on the Franchise Brand, process, qualifications, training, and closing process”.
Who do you sell your restaurant to, a current Franchisee or a Non-Franchisee? EATS Broker discuss the Pros and Cons:
PROS Selling to an existing Franchisee:
-Dealing with an educated buyer about the franchise
-Has already been approved by the franchise
-The capability of closing a deal fast because they don’t require the standard 4-6 weeks training.
CONS of Selling to a current Franchisee:
-They usually undervalue the business
– They understand the operation of the franchise brand
-They are harder to impress
-It can be challenging for them to get financing
PROS Selling to a Non-Franchisee:
– Can get a higher offer price
– They are excited about the new opportunity
– Usually are not experienced, restaurant owners
– Can sell them the opportunity for growth or proven sales numbers
CONS Selling to a Non-Franchisee:
– Lots of education about the buying process is needed
– Have to get approved by Franchisor
– Have to do the required training before a new franchisee can complete the sale. Training process is usually 4-6 weeks
– Closing process can take 2-4 months
Thinking about selling a restaurant contact EATS Broker. For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
Read MoreDay in the life of a Restaurant Broker
What does a Restaurant Broker actually do daily? Dominique Maddox Founder and President of EATS Broker shares his thoughts about the Day in the life of a Restaurant Broker.
Restaurant Brokerage is like a BIG secret fraternity where there is limited membership allowed. A large number of people don’t know the responsibilities or tasks a Restaurant Broker has daily. I decided to track my activities on 9/11/2020 in a writing log.
5:15 am – Wake up and put on the 1st pot of coffee and drink water. Review my Cash Scoreboard with my to-do list for the day. Add any items that come to mind.
6:00 am- Arrive at the gym and go beast mode to get ready for the day.
7:15 am- Review closing documents, send reminder emails to buyers and sellers. Send wiring instructions to the closing attorney for all parties.
7:45 am – On the road to take pictures of a restaurant I recently listed for sale. I must arrive before the back of the house staff arrives so they will not be suspicious.
9:00 am- Conduct a conference call between a buyer and seller to discuss add-backs on the Profit and Loss statements, and why the POS sales number are different than Sales Tax Filings numbers.
9:30 am-Start responding to emails in my inbox and following up with the To-Do list for the day.
9:45 am – Call a landlord to discuss the lease assignment for the new tenant. Let the landlord know franchise training will be for 4 weeks, we should be able to close mid-October.
10:00 am -Follow up with a closing attorney that $10,000 buyer escrow has arrived
10:15 am – Review my CASH Report and touch all my pending deals. Start cold-calling for new restaurant seller leads.
11:00 am- Receive a call from a financially qualified candidate. The buyer needs help in understanding the price valuation of the restaurant. The buyer does not understand the definition of add-backs for a price valuation.
11:30 am- Send a potential seller lead a complimentary restaurant valuation. Seller sent a copy of a 2018, 2019, 2020 Profit and Loss statements for review 48 hours earlier.
12:00 am- Receive a call from closing attorney wire disbursements that have been made. I contact all parties expecting a payment to let them know to check their bank accounts for the deposit.
12:00-12:45pm- Mental break. Listen to some R&B, Jazz, and watch some ESPN or stock market show.
12:47-1:05pm- Conversation with a current seller client about buyer activity on his listing.
1:15pm- Receive email from the buyer that requests to see back of the house for a listing I’m advertising for sale. I call the buyer and they don’t want to sign a non-disclosure or show proof of funds.
1:40 pm- Follow up with Hungry Howie’s buyer to get some feedback on how the 4-week training is going.
2:05 pm- An interested buyer requests a copy of our Asset Purchase Agreement to review with the intent to make a formal offer. I draft the Agreement and sent it for review.
2:35 pm – Schedule a meeting between interested buyer and seller at the restaurant for Saturday morning.
2:50pm- Follow up with Papa’s Pizza To Go Area Representative to discuss the training schedule for the approved candidate.
3:10 pm – Review language in a 50-page lease to find out the option renewals, lease expiration date, security deposit, and any prohibited uses.
3:25 pm- Receive a referral from a Financial Advisor. His client has 3 sub sandwich franchises that he wants to sell and is interviewing Restaurant Brokers.
3:27 pm -Followed up with the lead and had a conversation with potential seller lead with 3 sub sandwich franchises.
3:50 pm- Request updated 2020 Profit and Loss statements from all seller clients, to provide buyers with updated numbers.
4:10 pm – Assist buyers with a business plan and give feedback for improvement.
4:25 pm- Read restaurant news related blogs, articles, and restaurant news updates
4:37 pm- Have a conversation with the seller that wants to increase the sales price because they need more money at the closing table.
4:50pm- Send website improvements for www.EATSbroker.com to the website designer to make changes
5:10 pm – Work on restaurant valuation for a potential client
6:15 pm – Conversation with Amaya about Dinner
6:45pm- Online looking for new seller leads and responding to any missed emails.
7:15pm – Start writing a new blog
Restaurant Brokerage is a contact sport, brokers that are uncomfortable with multi-tasking, a challenging career, or demanding clients will not be successful. The life of a Restaurant Broker is to be a Subject Matter Expert in the Restaurant Brokerage Industry.
EATS Restaurant Brokers was formed to bring a new flavor to the Restaurant Brokerage Industry!
Thinking about selling or buying a restaurant contact EATS Broker. For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
Read MoreWhy do I need to show proof of funds
Did you know the statement “proof of funds” is not in the Merriam Webster dictionary? This information is interesting because the words, “proof of funds” are used daily in the Business Brokerage world.
Proof of Funds (POF) demonstrates how much money a person or entity has available in liquid assets. When purchasing a restaurant, you may need documentation showing your Proof of Funds to show the Seller or Listing Broker that you can cover the purchase costs of the restaurant transaction.
Dominique Maddox–Restaurant Broker and Founder of EATS Broker says, “I have experienced some serious heartburn from deals that I did not require a buyer’s proof of funds upfront. Restaurant Listings that are franchises with financial requirements, high-income listings, and SBA approved deals, I will require proof of funds before providing seller’s financials”.
A good Restaurant Broker will pre-approve buyers before sending the seller’s sensitive financial information to buyers for review. EATS Broker usually requires proof of funds in the form of a bank statement, 401 K statement, or letter from Bank. Once we have received the buyer’s financial information, we will send the restaurant name and profit and loss statements for review.
Proof of Funds should have the following information:
- Name of the account holder
- The balance of funds
- Date- needs to be within 3 months
- Letter from the bank-requires banker’s contact information
- Account Number is not needed
Proof of Funds not accepted
- Personal Financial Statement
- Copy of partner’s financials-if not involved in the deal
- Copy of mother’s or father’s 401K statement, but they are not part of the deal
- Copy of bank statement with balance amount blacked out
- Copy of a company’s Profit and Loss statement
- A verbal statement- I have more than enough to buy this business
- A verbal statement-I’m not showing my proof of funds until I see the restaurant’s financials
- A bank statement below the required liquid asset requirement
EATS Restaurant Brokers works with two different types of buyers. 1st the buyer that is willing to send proof of funds, and 2nd the buyer that doesn’t want to show proof of funds. Whom do you think a Restaurant Broker would prefer to work with and will respond to faster?
Some buyers feel entitled to view the seller’s financial information just because the restaurant is for sale. Imagine a buyer requesting a personal viewing for a home but doesn’t want to show their personal financial information.
EATS Broker advice to any buyers looking to purchase a restaurant have your proof of funds ready to show. Restaurant Brokers are looking for RAW(ready, able, and willing) buyers to convert into a closed transaction. Restaurant Brokerage is a 100% commission sales job, the buyers that are serious and ready to show proof of funds get the best customer service.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
Read More
Commercial Lease is it an Asset or Liability?
Your current commercial lease is it an Asset or Liability? Most Restaurant Owners find a restaurant for lease and sign a commercial lease before they open their restaurant unless they are buying the building. The sad truth is that a large number of restaurant owners never really read the lease they signed, don’t understand the lease, can’t find the lease, and have no clue about the effect the lease has on their chances of selling in the future.
Restaurant Owners across the nation have to decide if they should reopen and operate, close the doors for good, or try to sell. Restaurant Valuations are not only about sales and profits, but a big factor is also if the lease is an Asset or Liability.
Dominique Maddox Founder and President of EATS Broker says, “ My biggest headaches and heart burns have been with the lease approval or language in the lease, this affects how marketable a restaurant is to another buyer.” One of the biggest secrets in Commercial Real Estate is that the landlord is not your companion and the lease is written to benefit the landlord.
EATS Broker provides lease negotiations consulting to clients. Find some of the keys points we found in a recent lease we reviewed for a potential seller that was in the process of renewing the lease.
- Radius-In the event that during the Lease Term either Tenant, or Tenant’s management, or any person or entity controlled by Tenant, or controlling tenant, or controlled by the same person or entity or persons entities who control Tenant, directly or indirectly, owns, operates, is employed in, directs or serve any other place of business, which is (i) the same, or similar to, or competitive with, Tenant’s business as set forth herein, (ii) with a radius of five (5) mile from the outside boundary of the shopping center.
EATS Restaurant Brokers recommendation: Change the radius to 1 mile, this will allow you to open another restaurant in the future within 2-5 miles from your current location.
- Assignment or Subletting-Tenant shall pay an “Assignment Administrative Fee” of $5,000 and shall not have to reimburse the Landlord for all out-of-pocket expenses.
EATS Restaurant Brokers recommendation: Reduce fee to $1,000 because if you have a buyer for your location you would have to pay the landlord $5,000 for a lease assignment when 75%-80% of landlords do lease assignments for free
- Relocation of the Demised Premises- If Landlord determines that it is necessary or desirable that Tenant vacate the Demised Premises or that the Demised Premises be altered, Landlord may require that Tenant surrender possessions of the Demised Premises to the landlord, in its sole and absolute discretion.
EATS Restaurant Brokers recommendation- Language needs to be removed from the lease. The landlord has the option to uproot you and relocate you without your permission.
- Exclusive use: Landlord will not lease space in the Shopping Center to a tenant (herein “Competing Use”) whose primary use shall be the sale of fresh-squeezed juices and smoothies(herein “Competing Use”). For purposes of this provision, use is primary when more than fifty percent (50%) of such tenant’s Gross Sales are derived from the Competing Use.
EATS Restaurant Brokers recommendation: Your current lease does not protect you from another concept opening up in the same shopping center with gross sales of up to 49% for Fresh squeezed juices and smoothies. Request exclusive on Fresh squeezed juices and smoothies or other businesses cannot have more than 10% of the tenant’s gross sales.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
Read More